Houston's energy economy has clearly felt the sting of an unprecedented drop in crude and natural gas prices, with more than 18,000 jobs lost in past months.

But recent downsizing moves by Royal Dutch Shell, ConocoPhillips and other oil and gas companies appear to go beyond the typical bottom-of-the-cycle belt tightening.

They suggest a permanent shift toward doing more with less — in what could be a troubling trend for Houston.

“The oil and gas industry in the Houston area has probably seen its peak in terms of, if you want to call it, its glory years,” Allen Brooks, managing director at Parks Paton Hoepfl and Brown, a Houston investment bank that invests in the energy sector.

Last month, Shell said by year end it would cut 5,000 employees, or 10 percent of its global workforce, under a sweeping reorganization. ConocoPhillips — after cutting 4 percent of its workforce this year — is putting $10 billion in assets on the block to pay debts. BP, meanwhile, has cut more than 5,000 jobs worldwide under an ongoing turnaround, and major oil field services firms like Schlumberger and Halliburton have eliminated thousands more jobs this year.

While not all the job losses have been in Houston, the moves highlight a growing emphasis on getting lean to compete in a world where the costs and challenges of accessing new oil and gas reserves are rising each year.

That discussion re-emerged last month, when James Mulva, CEO of Houston-based ConocoPhillips, questioned whether the large, integrated business model that has prevailed for decades among western oil companies is still the best way forward.

But Irving-based oil major Exxon Mobil has disputed the idea, as have other observers who say restructuring programs launched by ConocoPhillips and others stem more from issues at those companies than from broader industry challenges and that their impact may be overstated.

Bull's-eye on Houston?

The short-term impact, however, is real. Houston's upstream oil and gas industry — consisting of exploration and production, oil field services and equipment manufacturing — lost 13,800 jobs in the 12 months ending September 2009. Local employment now stands at 244,100, Smith said.

On the downstream side, which includes refining and petrochemical workers, local employment in September 2009 was 106,700, down 4,600 from the year before.

Some oil and gas jobs will inevitably return as the recession lifts and global energy demand rebounds. And Houston will remain a key hub of activity, buoyed in coming years by deepwater projects in the Gulf of Mexico, increasing activity in natural gas shale plays in North America and other work.

But other jobs may never come back to Houston, the casualties of a shrinking workplace, technology improvements and a shifting focus from North America to oil-rich areas of Africa, the Middle East and South America.

“How rapidly we decline,” Brooks said, “is open to a lot of debate.”

One factor could be the fate of climate change legislation in Congress, which could add costs to oil and gas producers, refiners, chemical makers and other parts of the energy sector, forcing them to cut jobs, Susan Combs, Texas comptroller of public accounts said.

“I think there's a big bull's-eye painted on Houston,” she said.

At the bottom line

Recent cuts by oil companies come after the global recession sapped energy demand worldwide and sent crude prices tumbling from nearly $150 per barrel in July 2008 to the low $30 range early this year. Natural gas prices also plummeted, from a peak above $13 per million British thermal units in 2008 to less than $3 per BTU in September.

While oil prices have rebounded to nearly $80 and natural gas prices improved slightly, many oil and gas companies have remained focused on reducing costs and strengthening balance sheets, awaiting clearer signs of an economic recovery before returning to business as usual.

Companies like Shell, ConocoPhillips and BP have gone a step further, saying recently announced changes signal a break from their old way of doing business.

Shell's “Transition 2009” reorganization was needed to speed-up decision-making and reduce complexity amid “considerable challenges” from high costs, volatile energy prices, and competition for new projects, CEO Peter Voser said in May.

BP CEO Tony Hayward said cuts were designed to simplify the company's structure, improve profitability relative to peers and shift resources and emphasis to the front lines.

A look into the past

ConocoPhillips' Mulva called it shrinking to grow.

But oil companies have not disclosed how their Houston operations will be affected by downsizing moves.

Shell cuts in Houston, where the company has nearly 13,000 employees, are expected to be in the “hundreds,” not thousands, a person familiar with the company's plans said.

A BP spokesman said the company did not have a breakdown of layoffs by region, while a ConocoPhillips spokeswoman said the company does not publicly release details about job reductions.

Past downturns have cut deeply into Houston's oil sector.

In 1982 and 1983, for instance, some 125,000 of oil field equipment manufacturing jobs were lost, followed in 1986 by significant white-collar cuts, Smith said.

This time around, the oil equipment manufacturing business is once again taking the brunt of the job losses, he said. Oil services and equipment providers including Schlumberger, Halliburton, Baker Hughes and others have axed thousands of jobs amid a collapse in natural gas drilling this year.

Donald May, 63, said he was laid off in January after two years as a project manager with a local drilling services company.

Though he has 30 years of experience in the industry and is even willing to take a pay cut and an overseas assignment, he said he is still hunting for work.

May fears his age may be working against him, but remains optimistic, having gone through this before in his career.